Your Guide To Insurance In Florida

NEWS FLASH: If you are planning on applying for a Florida home loan, you are going to need insurance.

That may seem obvious, but chances are, there’s a lot you don’t know — and should know, as you get serious about a mortgage. You can avoid supplemental mortgage insurance if you can come up with a down payment of at least 20 percent of the price. That’s pretty much it as far as cutting costs, though! If you think about it, a lender needs to know that it’s protected when offering you a six-figure loan. If the home is destroyed, so is the lender’s investment. Thus, you are required to insure your property in the event of damage and to cover the cost of rebuilding.

SO WHAT TYPE(S) OF INSURANCE DO YOU NEED?

There are basic types of insurance to cover your property as far as the lender is concerned. The place you live will determine the extent of insurance you will need in large part, but at the very least you have to have homeowner’s insurance (also known as hazard insurance). Whether or not you are required to obtain flood and windstorm insurance will depend on where in this great country you reside. In Florida, there’s a strong change you will need one or both.

BASIC HOMEOWNER’S INSURANCE

The most standard type of insurance will cover your property in case of fire, vandalism and theft. Your personal belongings, property, and any adjacent structures such as your garage will be covered by your policy, which you will have to obtain before closing. Your insurance policy will also include liability in case you or someone on your property is injured.

NOTE: Before issuing your Florida home loan, the bank will require you to get at least the cost to rebuild. However, you should get more in order to protect your personal items and increase the amount of coverage as much as you can. You never know what will happen.

In most cases, your lender will be able to include the cost of your policy in your monthly house payment. Your Florida property taxes will also be combined into the total amount, known as PITI (the abbreviation for the principal mortgage payment, plus the interest, local taxes and the insurance). See below for basic suggestions on getting started finding a provider.

WIND / WINDSTORM INSURANCE

If you have applied for a Florida home loan previously, you probably already know a thing or two about wind insurance. Hurricanes and tropical storms can cause all sorts of damage that is not covered by your homeowner’s insurance. Again, you will need to obtain a wind insurance policy that covers at least the cost to rebuild, plus any contents.

FLOOD INSURANCE

If you thought you could luck out and get one all-purpose policy to cover you in the event of a big storm, well, you would be very wrong. That would be too easy! Rising water is not covered by hazard insurance or even wind insurance, believe it or not. If any weather event (as they like to call it on the Weather Channel) causes water to rise, you are going to be left in hot water. Or cold water. No pun intended. Sorry. Bottom line, you will need flood insurance.

At the time of your mortgage application, your lender will conduct a survey of the property to determine if it lies in a Federal Emergency Management Agency (FEMA) flood zone. If so, it will require that you get flood insurance, which will usually cover the first $250,000. Excess flood insurance may also be attainable for more expensive homes.

THE WIND vs. FLOOD INSURANCE CONFUSION

If Hurricanes Katrina and Wilma taught us anything about insurance, it’s that there are no shortage of grey areas. For example, if a hurricane touches down near you, but water is the specific cause of the damage, what policy is required to pay out? Good question. Rising water from the ground means that it falls under the flood insurance umbrella (again, apologies for the pun). Katrina’s damage to New Orleans and vicinity was devastating in this regard, as huge portions of the city flooded.

However, if wind causes structural damage to the roof or walls and water subsequently comes in, then it’s your wind insurance policy that will cover you. The lesson here is that you should probably have both if you are anywhere near the East Coast, particularly in Florida or the Gulf Coast. Just when you thought this couldn’t get any more confusing, there is the matter of condo associations having their own policies — and what they cover.

YOUR HOMEOWNER’S ASSOCIATION AND ITS INSURANCE

Condominium conversion and construction is all the rage these days, and South Florida is flush with huge associations. Most townhouses and condos will have a master insurance policy for the entire building or area, but what this covers is often up for debate and becomes a point of contention. Due to the attached nature of their structure, all of it must be recreated at once in the even of a disaster, and their all-encompassing policy is thus required by law.

If the homeowner’s association (HOA) overseeing your prospective property has a master policy, then there’s no need for you to ensure the cost of rebuilding. A significant amount of the condo fees you pay are probably going towards this already. You just need to show the master policy to your lender (or to your mortgage broker, if you choose to work with one, who will pass the information along). Be advised, though, that your possessions will almost never be protected under these circumstances — and you may be on the hook for more than you realize.

The association is responsible for structural damage, but not necessarily “interals” — such as windows, doors, bathrooms, appliances, et cetera. In the aftermath of Wilma, an incredible amount of Florida condo owners have sparred with their associations over who is responsible for window damage. Be sure to read the find print and talk to the association president to establish what exactly is covered, so that you can take care of the rest before a situation arises that leaves you short a lot of money.

RENTER’S INSURANCE

One way around this potential dilemma is renter’s insurance, ironic since you are the legal owner (or are going to be) of the property. This type of insurance is also called “contents” by some agencies. Essentially, it supplements your insurance and covers what your HOA does not. The lesson to be learned here, once again, is to be sure you have adequate wind, flood, and hazard policies and whatever you need for your contents, because you just never know.

WHERE TO SHOP FOR INSURANCE

You will need to contact an insurance agent, but that’s not hard. Whether you are working with a mortgage broker, or with the lender directly, you should be able to get a good reference. The big names in national homeowners insurance, such as State Farm, write a huge number of policies and can surely provide the experience you need. Check in your area by surfing around the web, or by consulting the Florida Department of Financial Services.

WHEN YOU PAY FOR INSURANCE

When closing time arrives, you will be required to pay for your insurance for the entire year (if your lender has not already factored it into your monthly payments). What you need in order for the mortgage process to continue in the interim is proof that you are in contact with an insurance agent/company. They should provide you with an insurance binder, containing the essential information about the property.

This data includes all the questions you will be asked by the company’s representatives, such as when the property built, whether it is in a flood zone, et cetera. You may not even know the answers to these questions, but the appraisal the lender makes you pay for (remember, this happens before you are even approved for a mortgage) has it all documented for you. Once you get him or her the appraisal, the insurance reps should be good to go.

Hopefully this introduction to a confusing, but integral part of the Florida home loan process has been helpful! Be sure to see our mortgage process overview and feel free to contact us at any time. Our free application comes with no obligations and can be completed right here on our site! We look forward to hearing from you and to making your Florida home loan experience rewarding!